Field of the Invention
The present invention relates to the field of securities trading systems and, in particular, to a computer-implemented system and method for scale trading.
Description of Related Art
A market participant that desires to sell or buy a large order of stock generally may not submit the order in one single order because exposing a large order often causes adverse price effects to the disadvantage of the market participant. Thus market participants employ various methods and strategies to minimize the adverse price effects.
Market participants (generically referred to herein as traders) cannot ensure that they successfully move a block order simply by attempting to camouflage it by breaking it up into individual, smaller lots and executing them over a period of time so as not to move the market. There is a risk that parasitic traders will detect the pattern of small lots and trade in the same direction of the large, block order. Furthermore, breaking up the order into multiple trades also requires significant time, effort and monitoring. A market participant breaking a block order into multiple smaller orders is also subject to technological limitations. For example, in trading systems where the market participant (also referred to herein as a trader) transmits orders via an electronic communications network, the trade orders are subject to interruptions in communications, which may cause certain of the multiple orders to be lost or delayed. Additionally, as the number of orders increases, the potential for errors in tracking such orders increases.
Another method employed by market participants is the use of sophisticated order types. Some market places allow participants to conceal large orders with the use of so-called “iceberg” orders. Iceberg orders allow market participants to publicly display only a small portion of their order while hiding the rest. An iceberg order is a limit order that has both a displayed portion and a non-displayed portion, both of which are available for execution against incoming marketable orders. The non-displayed portion is available for execution only after all of the displayed portion has been executed. Iceberg orders can take longer to fill and the entire order gets filled at or near the same price level of the non-displayed portion.
Another method used by market participants is sending the block order to block crossing networks. These crossing networks are dark liquidity pools that match contra orders. A successful match is dependent on the depth of liquidity in the particular security on the network. Thus, large block orders may take unduly long to execute, if at all.
Thus, a need exists for an improved method and system for trading, particularly large block orders.